'They have no honor': America's top pension fund to vote against Elon Musk's $56 billion pay deal, CEO says

By Louis Goss

The California Public Employee Retirement System (CalPERS), America's biggest public pension fund, is planning to vote against a controversial proposal to pay Elon Musk $56 billion for his work as Tesla's CEO, the pension's fund head has said in an interview with CNBC.

"As of today, minus the conversation that has yet to happen with Tesla, we would not be voting in favor of that proposal," CalPERS CEO, Marcie Frost, told CNBC. "We do not believe that the compensation is commensurate with the performance of the company."

Musk hit back in a post on social media platform X, formerly Twitter, stating: "CalPERS broke the deal. Shame on them, they have no honor."

The pension fund's public stance follows proxy advisor Glass Lewis' recommendation last week that Tesla's shareholders should vote against Musk's "excessive" pay award that would be the biggest ever paid in U.S. corporate history.

CalPERS owns a $1.67 billion stake in Tesla, making it one of the company's top 25 shareholders, data compiled by FactSet shows. Musk is the world's third richest person, with a net worth of $202 billion, according to the Bloomberg Billionaire Index.

See also: Tesla's shareholder meeting has even higher stakes this year. Here's why.

Musk's all-or-nothing pay deal was initially approved by Tesla's shareholders in 2018 in an agreement that saw the firm agree to give the CEO up to 304 million shares in the carmaker in return for achieving certain profit and revenue linked milestones.

Under the terms of the deal, Musk had the opportunity to obtain 12 separate tranches of Tesla's shares, each equivalent to 1% stakes in the company, for every $50 billion increase in its market capitalization that was paired with Tesla hitting its financial goals.

The pay award, which must now be ratified by Tesla's shareholders at the carmaker's annual general meeting on June 13, would boost Musk's stake in the company from 12.89% to 22.4%, making him the company's largest shareholder by a significant margin.

In February, a Delaware court voided Tesla's $56 billion pay agreement, on the grounds that the 2018 deal was unfair to Tesla shareholders, as Judge Kathaleen McCormick ruled the carmaker had been "swept up by rhetoric" and found themselves "starry eyed by Musk's superstar appeal."

In a 201-page ruling, the court said Musk had outsized influence over the pay decision due to his stake in Tesla and his "extensive ties" with members of the carmaker's compensation committee, including Ira Ehrenpreis, a close friend of Elon Musk's brother Kimbal Musk.

The Delaware court said Musk "unfathomable" pay award was not needed to keep the CEO at Tesla but was instead calibrated by Musk to help him achieve his own personal goal of building a "good future for humanity."

Tesla later announced plans to reincorporate in Texas, following its decision to move its headquarters to the Lone Star State in 2023. "Never incorporate your company in the state of Delaware," Musk said in a Tweet following the Delaware court's decision.

In a 71-page report on May 25, proxy advisor Glass Lewis urged Tesla shareholders to vote against Musk's pay award and warned the "excessive" package would concentrate the CEO's control over the company and dilute existing shareholders' current holdings.

Glass Lewis also called on shareholders to vote against plans to reincorporate Tesla in Texas and to re-appoint Kimbal Musk to the company's board, citing concerns about the management's "overall independence."

The proxy advisor separately highlighted concerns about Elon Musk's "executive focus" and the "extraordinarily time-consuming projects" he also works on including social media platform X, which he acquired for $43 billion in 2022.

In a presentation on May 23, Tesla said approving Musk's pay award would incentivize the CEO to continue driving up the car company's value as the deal requires him to hold any shares he is given for at least five years.

Musk's successes in boosting the carmaker's performance, from a loss making company with $11.8 billion in revenue in 2018 to a profit-making business with $95.8 billion in revenue today, justifies the $56 billion pay package, the company said.

"A deal should be a deal: stockholders approved the plan. Elon hit the targets. We should hold up our end of the deal, Tesla said in its May 23 presentation.

CalPERS, which has around $465 billion in assets under management, first pioneered its approach to activist investing in the late-1980s and has since led major campaigns against a raft of top U.S. companies including most-recently ExxonMobil.

CalPERS and Tesla were approached by MarketWatch for comment.

-Louis Goss

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05-30-24 0554ET

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